Gold climbed above $4,150 during Tuesday’s European session, extending a modest recovery from the $4,100 area — its lowest level in two months. The uptick came as the US dollar took a breather after its recent surge from September’s swing low, and as markets trimmed expectations for an October Federal Reserve rate increase.
Nevertheless, the broader backdrop suggests the metal’s path of least resistance remains downward. Traders are cautious before committing to further gains, given still-elevated rate expectations, persistent geopolitical tensions and high US bond yields.
Why gold is edging higher
The dollar’s rally stalled early this week after hitting its highest since April 2025 on Monday. Profit-taking in the greenback made dollar-denominated bullion cheaper for overseas buyers, providing a short-term lift.
Meanwhile, the probability of a Fed rate hike in October has receded. Last week’s US macro data pointed to moderating inflation and a slight cooling in the labour market. However, traders still price in more than an 85% chance that the Fed will raise borrowing costs again by year-end. Economists at Deutsche Bank note that the softer headline payrolls number “has not fundamentally altered the broader labour-market story” and they “continue to expect two further 25bp Fed hikes over the next couple of quarters.”
Headwinds remain strong
Geopolitical uncertainty continues to support the dollar. The Iran-backed Houthi group in Yemen claimed missile and drone attacks against airports, an oil facility and military sites in Saudi Arabia. Separately, the Saudi-led coalition said it destroyed a ballistic missile launch platform in Sanaa. Media reports also indicate Israel is preparing a potential attack against Iran, either alone or with US coordination, raising the risk of further Middle Eastern escalation.
Adding to dollar strength, a deepening fiscal shock in France has triggered an extended sell-off in fixed-income markets, keeping US bond yields near multi-year highs. Higher yields increase the opportunity cost of holding non-yielding gold.
Deutsche Bank highlights that the market is pricing in about 86 basis points of Fed rate increases over the next 12 months – down from 100 bps last week but up from 70 bps just after the payroll release. This underscores that while rate expectations have moderated, they remain firmly skewed toward additional tightening.
Technical picture: bearish consolidation
Despite the intraday bounce, gold’s price action over the past week has formed a range that could be categorised as a bearish consolidation following the drop from the August monthly high. The MACD indicator sits below zero, and the Relative Strength Index (RSI) near 38 suggests weak momentum rather than a clear oversold condition.
Initial resistance lies at the 61.8% Fibonacci retracement of the recent decline, around $4,226. On the downside, a convincing break below the trading range and the 78.6% Fibo retracement at $4,098 would open the door to deeper losses toward the prior cycle low near $3,936.
Traders will look to Wednesday’s release of the Federal Open Market Committee meeting minutes for further clarity on the policy path. Speeches from FOMC members and geopolitical headlines will also drive direction.
Key takeaways
- Gold recovered from a two-month low near $4,100 to above $4,150, aided by a softer dollar and reduced Fed rate-hike bets.
- The fundamental backdrop remains bearish: the Fed still leans toward tightening, geopolitical tensions support the dollar, and US bond yields are near multi-year highs.
- Technical indicators (MACD below zero, RSI near 38) point to weak momentum and a continued downside bias.
- A break below $4,098 would likely lead to a test of the $3,936 structural floor, while resistance sits at $4,226.
Common questions
Why is gold rising if the outlook is bearish?
The rise is a short-term correction driven by profit-taking in the US dollar and a slight reduction in near-term rate-hike expectations. The broader fundamental picture – including high yields, geopolitical risk premiums favouring the dollar, and firm rate-hike bets for year-end – still works against gold.
What are the Fibonacci retracement levels mentioned?
Fibonacci retracements are technical levels used to identify potential support and resistance. The 78.6% Fibo retracement at $4,098 acts as a key support; a break below it would suggest the decline is resuming. The 61.8% Fibo retracement at $4,226 is the first resistance level.
What will drive gold next?
The FOMC meeting minutes on Wednesday and speeches from Fed officials are key. Any signals about the pace of rate hikes or the economic outlook will affect the dollar and gold. Ongoing Middle East developments could also shift investor sentiment.
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In summary, gold’s bounce from the two-month low appears more corrective than trend-changing. With the dollar pause likely temporary and rate expectations still elevated, further downside tests cannot be ruled out.